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For China, Turkey missile deal a victory even if it doesn't happen

HONG KONG, Oct 2 (Reuters) - Turkey's $4 billion order for aChinese missile defence system is a breakthrough for China inits bid to become a supplier of advanced weapons, even thoughopposition from Washington and NATO threatens to derail thedeal.

The winning bid from the China Precision Machinery Importand Export Corp (CPMIEC) to deliver its FD-2000 air defencemissile system in a joint production agreement with Turkey isthe first time a Chinese supplier has won a major order forstate-of-the-art equipment from a NATO member. U.S., Russian and Western European manufacturers were also in the fray.

The decision last week to award the contract to CPMIEC, acompany that is under U.S. sanctions for dealings with Iran,North Korea and Syria, surprised global arms trade experts andsenior NATO officials.

"It is quite significant I would say, if it materialises,"said Oliver Brauner, a researcher on China's arms exports at theStockholm International Peace Research Institute (SIPRI)."Itwould certainly be a landmark deal."

Turkey signalled on Monday that it could back away from itsdecision after Washington said it had "serious concerns" aboutthe deal with a sanctioned company for a system that would notbe compatible with NATO's other weapons and networks.

And, in a reminder that Ankara faces stiff opposition fromits alliance partners in Europe, a NATO official in Brusselssaid it was important that equipment ordered by member countriesis compatible.

"It is premature at this stage to say whether Turkey'sacquisition will be able to operate with the NATO Integrated Airand Missile Defence System," the official said.

NATO's disappointment with Turkey is heightened by the factthat the United States, Germany and the Netherlands each senttwo Patriot batteries earlier this year after Ankara asked forhelp in beefing up its air defences against the threat ofmissiles from Syria.

Ankara could call off the air defence deal under pressure,but some Chinese and foreign commentators suggested it wouldstill be a symbolic victory for Beijing.

Chinese military experts say the system performed well inlive tests for the Turkish Defence Ministry.

It also signals that China's sprawling defence industry ispoised to become a low cost supplier of high technology weaponryalongside its rapidly expanding sales of basic militaryequipment including small arms, artillery, armoured vehicles,general purpose vehicles and older generation missiles.

CHINESE MILITARY EXPORTS SOARING

China has displaced the United Kingdom as the world's fifthbiggest arms supplier in the five years to 2012, according toSIPRI.

Chinese exports of conventional weapons increased 162 percent in the five years from 2008 to 2012 compared with the fiveyears from 2003 to 2007, the arms trade monitor reported earlierthis year.

Sales to close ally Pakistan accounted for most of this butChina is also expanding its deliveries to other markets, mostlyin the developing world.

While almost three decades of double digit, annual increasesin military spending has accelerated Beijing's ambitiousmilitary build-up, it has also allowed China's defence factoriesto boost the quality and performance of home-grown weapons andmilitary hardware.

"There are good reasons for China to succeed in Turkey,"says Vasily Kashin, an arms trade expert at Moscow's Centre forAnalysis of Strategies and Technologies. "The key factors wereprice and the readiness to transfer technology."

Atilla Sandikli, the chairman of think-tank Bilgesam and aformer high-level officer in the Turkish army, said an offer oftechnology transfer from China was decisive.

Turkey's NATO allies were less enthusiastic aboutco-production and technology sharing, he added.

"The only reason why Turkey didn't have them (the airdefence systems) until now is because they wanted to achieve thetechnological information and know-how to produce thesesystems," Sandikli said."I think Turkey's choice is a message toits NATO allies in this sense."

Some analysts said Turkey's decision also reflected warmingties between Ankara and Beijing in recent years and a growingtrack record of defence cooperation.

Nihat Ali Ozcan, an analyst at Ankara-based think-tankTEPAV, said that Turkey and China already were in cooperation onshort-range missile defence systems.

"Co-producing these systems also requires technologytransfer, and China has no restrictions on it," he said.

Reports in China's state-run military press suggested thesale would open the door to further high technology orders inthe West and other markets. Chinese military experts were quotedas saying that while price had been a key factor, the capabilityof the FD-2000 system also satisfied Turkey's demands.

China has been aggressively marketing this air defencesystem at arms exhibitions and air shows in recent years.

Military analysts familiar with the FD-2000 say it is aleading example of Chinese defence industry's capacity to absorband adapt foreign technology, combine this with local innovationand ramp up low cost manufacturing.

Kashin said the Chinese missile system was partly based onWestern technology obtained from Israel and also drew on Russianknow-how.

It was possible that Russia supplied some of the componentsand technology under contracts with China, he said.

According to marketing material for the FD-2000 and reportsin the Chinese military press, the missiles, launchers, radars,vehicles and support systems of the mobile FD-2000 are alldesigned and built in China.

It is reported to be effective in intercepting highperformance strike aircraft, helicopters, unmanned aerialvehicles (UAVs), precision guided bombs and a range ofmissiles. It is also advertised that it remains effective duringheavy air strikes and electronic interference.